Can someone explain the difference between these two terms (in CFA L2 curriculum)? I thought they meant the same but apparently not.
High Frequency Trading is when you make hundreds of trades within seconds. Usually these are done by Hedge Funds and Big Investment Banks with Huge capital.
Low-Latency Trading is basically when the latency between your server and the exchange server is low and thus your time of order placement and exchange’s recognition of that is almost instant and thus helps in avoiding slippage.
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So if you want to do HFT, then you must have low latency, right?
But not the other way around, you can have low latency, but choose to keep your positions for the long term?
Is that a fair conclusion?
yes, i think your deduction is a good summary between the two. you need low latency hardware in order to perform HFT but not necessarily the other way around.
I found this excerpt in the CFA Level II textbook page 164 - 165:
When trying to open or close positions, low-latency traders often need to send or cancel orders very quickly in response to new information. In contrast to HFTs, low-latency traders may hold their positions for as long as a day and sometimes longer.
Another point about HFT is they complete round trip trades (buying and selling as fast as they can) whereas Low-Latency traders may hold their positions (not engage in trade)
High-frequency traders (HFTs) generally complete round trips composed of a purchase followed by a sale (or a sale followed by a purchase) within a minute and often as quickly as a few milliseconds.
Hope this is helpful!
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